Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Feb 25, 2021

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Summary

  • Sometimes there isn’t enough money in emergency savings, and you need money to pay for medical bills or auto repairs
  • Many people in this situation turn to personal loans to help them cover surprise costs
  • A personal loan could be the right choice for you, but you need to be careful, and you need to make sure you completely understand the terms of your loan

Taking out a loan can have a large impact on your financial future. A personal loan could be a real lifesaver when you’re in financial need, but if you’re not careful, you could wind up with more debt than you know what to do with.

We’re here to help you make good loan decisions and understand exactly what taking out a loan will do to your financial future. There are many things you need to know before taking out a loan and while you are looking for one.

We will go over some essential loan information that you should keep in mind when you are making the decision whether or not to take out a personal loan.

If you’re ready to take out a personal loan, enter your ZIP code above to compare personal loan interest rates in your area.

Why do you need a loan?

What is a loan for? Before you take out a loan you should have a good idea about what you need your loan for. Many people take out personal loans to cover emergency expenses like medical bills or auto repairs. However, this is not ideal.

Many people also choose personal loans over auto loans when it is time to buy a vehicle. If managed correctly this could be a much more beneficial option than working with a dealership’s financing department.

Whatever the case may be, taking out a loan should not be done lightly. Make sure you have a good reason for taking out a loan before you do so.

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How do I take out a loan?

If you are wondering how to take out a loan, it is simple. Most people just go to their bank and fill out an application. This is one of the easiest options for taking out a loan.

Getting a loan with your personal bank makes repayment easier. You also already have a relationship with your bank, and they will likely be able to approve your application quicker than other lenders.

While getting a personal loan with your bank may be the easiest option, it may not be the most affordable or offer the best repayment terms. It is wise to shop around and see what types of personal loan offers are available for you.

You can enter your ZIP code on this website to start shopping for personal loans in your area. There are also a ton of online resources that can help you find the best possible personal loan for your needs.

Check out Experian’s online resource for personal loans if you’re interested in reading more about this subject.

How much money can you afford to pay back when taking out a loan?

Once you have decided you are going to take out a personal loan, this is the most important question for you to consider. Just because you can technically make payments doesn’t mean you can necessarily afford the loan you are paying for.

If you’re living month to month without saving money, you are one more disaster away from not being able to make your loan payments. This could cause you to slip into further financial trouble.

What you need to understand is that you are going to pay more than your loan total due to interest.

Depending on your interest rate and your repayment terms, you could be paying thousands of dollars more than what your original loan was for.

Do you understand the terms of your loan?

Lenders build in all sorts of tricky ways to get more money out of you. Before you sign any loan agreement, make sure you know what you are signing.

There are a couple of fees that lenders try to shoehorn into loan agreements that we will notify you about, including loan processing fees. This type of fee is most often seen with mortgages, but personal loans will include them as well.

You could be charged one percent of your total loan or more just for taking out the loan. See if these fees are included in your agreement. If they are, try to get them waived.

Some lenders charge prepayment penalties. That’s right; you could be penalized for paying off your loan too quickly. Why would they do that?

Simple, lenders want to get as much interest out of you as they possibly can. This is why they include this ridiculous fee. We strongly suggest you move to strike this fee from your loan agreement.

All lenders will charge late fees if you make a late payment. You may be able to get these fees waived one or two times, but this is not a good habit to get into. Late payments can hurt your credit score and cost you more in fees.

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Taking Out a Loan: The Bottom Line

You should never take out a loan lightly. This is a serious financial agreement you are entering, and there are a few key things to know before taking out a loan.

Be sure that you really need the loan before you agree to it. Loans can be great or terrible for your financial future, depending on how you manage your debt.

If you’re ready to take out a personal loan, enter your ZIP code below to compare loan rates near you.